Changes to foreclosures could backfire, EU official warns

Amendments to the foreclosure framework could backfire and destabilise the banking sector if not properly designed, an ECB official has warned.

In an interview with the Cyprus News Agency, Elizabeth McCaul, Member of the Supervisory Board of the ECB, advised caution over possible amendments to the foreclosure law because “such policies can also backfire and destabilise the banking sector if designed in a haphazard manner.”

McCaul noted that last year’s amendments to the framework, which allowed recourse to the financial ombudsman for breach of the code of conduct and extending various timelines of the various steps of the procedure, “risk a negative impact on banks and may cause further delays.”

She said policies could benefit the economy and banks alike if they are properly designed and implemented.

But “such policies can also backfire and destabilise the banking sector if designed in a haphazard manner.”

“So, the right mix has to be found,” she said, noting that that while banks have reduced NPLs on their balance sheets, it does not mean that debts have magically disappeared: they are still present elsewhere in the Cypriot economy.

Amendments to the insolvency and foreclosure framework have indeed helped to remove some of the impediments to the insolvency framework and the foreclosure procedure, McCaul said, but there are several more impediments that need to be addressed, such as the low uptake of the insolvency and pre-insolvency tools, and existing backlogs in the judicial system.